Professor Meltzer Asks and Answers a Capital Question

The title and the simple earth-tone cover can’t compete with the summer blockbusters that promise either easy weight loss or vicarious sexual thrills.

Maybe that’s the point.

The real world often isn’t easy to successfully traverse except through direct and rational participation. Professor Allan H. Meltzer understands that. And Meltzer’s Why Capitalism? (Oxford University Press) is capturing the hearts and minds of those 2012 voters who really mean it when they say, “It’s the economy…and we’re not stupid.”

“Capitalism in not a utopian system, but there is no better system for providing growth and personal freedom,” writes Meltzer, a Carnegie Mellon University professor of political economy. With that as the starting point of his 154-page briefing, he delivers his strikingly clear case for the superiority, but not the infallibility, of capitalism, consciously echoing the ideas of Immanuel Kant, Milton Friedman and like thinkers while scrupulously avoiding the temptations of mindless cheerleading.

Meltzer offers Kant without cant.

Referring to such contemporary economic issues as the health-care debate and the 2008 housing-credit crisis, the Hoover Institute scholar celebrates capitalism as “the economic system that guides most of the world.” As Meltzer stresses throughout the book’s six chapters, “Capitalism is unique in permitting change and adaptation, so different societies tend to develop different rules and processes. What all share is ownership of the means of production by individuals who remain relatively free to choose their activities, where they work, where they buy and sell, and at what prices….[Capitalism’s] success rests on a foundation of a rule of law, which protects individual’s rights to property, and, in the first instance, aligns rewards to values produced. Working hand in hand with the rule of law, capitalism gives its participants incentives to act as society desires, typically rewarding hard work, intelligence, persistence, and innovation….”

At the same time, though, the good professor cautions against unqualified devotion to any man-made tool, noting that the “problem with the moral defense of capitalism is that it ignores or discounts the occurrence of venal or illegal activity and expedient, self-serving decisions.” In short, for every Vladimir Lenin there lurks nearby a Jay Gould, the notorious financial manipulator whom Mark Twain described as “the mightiest disaster which has ever befallen our country.” Up to The Gilded Age, that is.

Calling down the spirit of philosopher Kant, Meltzer is unequivocal about capitalism as the better choice, for individuals and for nations. Man is imperfect, certainly. But capitalism, and the personal freedom from which the system builds its engine, outpaces statist alternatives that “restrict choices only to those that officials will permit.”

With regard to the “small ball” played within democratic capitalist systems, Meltzer calls ‘em as he sees ‘em, too. “Critics of capitalism who emphasize ‘fairness,’” Meltzer writes, “often do not recognize that this word is hard to define, for the system is not static, but ever-changing, with the ‘fair’ result changing with it. The word ‘fairness’ is often a way of avoiding mention of the real goal of such critics, redistribution. Proponents of fairness generally want more private goods to be supplied publicly at subsidized prices or increased spending on welfare—to be paid for by taxes on those with above medium income or by the issuance of debt to be paid by later generations. Much legislation or regulation presented as ‘fair’ leaves large debt to future generations.”

A text as accessible and well-structured as Why Capitalism? is a credit to the Pittsburgh scholar, author of A History of the Federal Reserve, Volumes 1 and 2. In particular, journalists and cable-TV pundits might quit talking among themselves and put their noses in this book. The first few sentences from Meltzer’s preface explain the reason for starting such a summer reading club:

“It was with a mixture of surprise and disbelief in the fall of 2008 that I read journalists’ commentaries on the end of capitalism. Many welcomed the expansion of regulation and government intervention and the weakening of market competition as a regulator. Several journalists asked me to comment on the alleged end of capitalism. Did they not see that capitalism had become the dominant form of economic organization…? I often wonder if they are pleased by the increase in regulation that coincides with sluggish growth and persistent high unemployment.”

With Why Capitalism? Meltzer has accomplished the goal of the good teacher—to introduce the student to the basics and to point that student toward further learning on his or her own. Given the stakes involved in this year’s election—cultural as well as economic—the lessons contained within Professor Meltzer’s book are too important to be ignored.

Particularly by journalists.

J.F. McKenna is a business journalist, communications consultant and former editor and associate publisher of the national manufacturing magazine Tooling & Production. Reach him at jf_mckenna@yahoo.com .